Treasury has invited the self-managed superannuation fund (SMSF) industry to provide views and ideas on reducing the regulation of the sector, as part of the government’s philosophy of reducing the regulatory burden on business.
Rob Heferen, executive director of the Australian Treasury revenue group told the 2014 SPAA SMSF National Conference that “the broad philosophy of people being in control of their own retirement incomes for the future is unambiguously a good thing”.
Comparing the regulation of super funds by the Australian Prudential Regulation Authority (APRA) with the regulation of SMSFs, which are regulated by the Australian Taxation Office (ATO), Heferen said SMSFs pose “no systemic risk” to the financial system” and that there is a case for treating them differently.
“When you think about the APRA-regulated funds, [from] which SMSFs are carved out, one of the key reasons to regulate them is first of all there’s a stability risk to the financial sector; the other thing is of course you might need to make sure the trustees are doing the right thing on behalf of their members, particularly when there’s that potential [high] level of disengagement.
SMSFs different
“SMSFs are quite different. Trustees being members…of course they’re going to look after their own interests.
“And there’s no systemic risk to the financial system from SMSFs. If an SMSF, or even a group, happened to lose a lot of money, it would be tragic for the people involved but there’s not the systemic risk.
“And for a government that is generally in favour of less regulation rather than more regulation and is looking for any opportunity to reduce the burden of regulation on the economy, I think it’s an interesting question.
“Clearly, given the tax concessions involved, there needs to be some level of accountability – to make sure the money goes in, that it’s actually used for its proper purpose, it isn’t illegally withdrawn and used for current consumption when it’s meant for future consumption – and the people in the room play a key role to make sure things are looked after for people’s retirement, and hence the annual audits and requirements for higher standards and qualifications.
“But I think there’s an issue around is there the right balance of regulation? Given the government’s quite explicit intention to make sure the economy is regulated only to the level which it really needs to be to be a properly functioning, optimised economy, that is the one thing I would like to say: If there are views on what the ideas of possible deregulation could be…we would really appreciate hearing that.”
Light-touch
Heferen’s comments followed those of the Assistant Treasurer, Senator Arthur Sinodinos, earlier at the conference when he said: “Where possible it’s about light-touch regulation, and we like that sort of regime and we think it can work well in this sector, because people want to take responsibility for themselves.”
Alison Lendon, deputy commissioner of the ATO, said the results of its surveillance and compliance monitoring had uncovered a relatively small number of problems in the sector. Of the approximately 516,000 funds, only 150 were made non-complying as a result of breaches in 2012-13; and of the almost one million SMSF members, only 440 were banned from being trustees in the same period.
Lendon said five areas continue to cause the ATO concern. They are:
• illegal early-release schemes;
• on-time SMSF annual return lodgement;
•
fraud;
• non-arm’s-length income; and
• limited-recourse borrowing arrangements (LRBA).
“One area we think could become an increasing concern, if it’s not properly managed by all of us, is the consequence of the ageing population, and that is pension-phase issues – issues such as calculating exempt current pension income incorrectly, minimum pension requirements, transition into pension phase, and incapacity or death of trustees,” Lendon said.
“These are areas that we look at quite closely.”
Focus on gatekeepers
The commissioner of the Australian Securities and Investments Commission (ASIC), Greg Tanzer, said the regulator’s focus was on the “gatekeepers” of the superannuation system, in particular financial advisers, SMSF auditors, issuers and distributors of financial products in which SMSFs invest, and to a lesser extent
SMSF trustees themselves. “Gatekeepers pay a really critical role in Australia’s financial system overall,” Tanzer said.
“We have an excellent, excellent system, but it relies heavily on investors making informed investment decisions and being prepared to accept the risks involved.”
No minimum size
Tanzer said that ASIC had no intention of mandating a minimum balance “below which you could not advise that a person establish an SMSF”.
“That is not what we’re about doing,” he said.
“We tried to make this clear in the consultation paper [CP216], but I’ll make it clear again: We are not about trying to specify that if a person has a minimum balance of less than $100,000, let’s say, you cannot advise them to set up an SMSF. That is not what we’re talking about.
“What we’re looking to do is to provide fact-based, research-based guidance that says, when you’re thinking about cost, you need to understand that if you’re purely looking at cost, if you’ve got less than $100,000 in your SMSF you’re probably going to end up paying more through the SMSF – probably.”
